Student loan interest rates

Resolution of student loan interest rates does not begin to fix the larger problem.

Copyright 2013: Houston Chronicle

Published 6:21 pm, Friday, July 26, 2013

Washington appears to have resolved an issue that affects literally millions of American pocketbooks. Congressional lawmakers have settled on a compromise that would reverse the sticker shock of a mandatory jump in interest rates that doubled them effective July 1.

Retroactively, the government-backed loans used by millions of U.S. college students to finance their educations will be tied annually to 10-year U.S. Treasury bond rates.

For undergraduate loans, an additional two points of interest will be added to cover the costs of managing the program - loan defaults and other expenses. Congressional researchers project that the rate on new loans for undergraduates would be 4.62 percent for loans taken out next year and 7.25 percent for loans taken out in 2018. Rates would be fixed for the life of each loan, with a cap of 8.25 percent for undergraduates, 9.25 percent for graduate students and 10.5 percent for loans taken out by parents.

All's well that ends well, right?

Not so fast. Before this subject leaves the headlines, the debate should be widened to cover key points not much discussed:

1) The heedlessly extravagant way in which many if not most colleges and universities have continued to allow tuitions, fees and other expenses to rise out of all proportion to the real world of static incomes and growing workplace insecurity.

The escalation of college costs is an old story. In a low inflation environment these costs rise steadily at an average far above the annual inflation rate.

One large reason why institutions of higher learning can mark up their prices is that administrators fully realize that a huge pool of student loan money, public and private, will be available to cover the increases. There's utterly no incentive to apply the spending brakes.

2) Hard questions: Should students be required to demonstrate that the curriculum they choose is likely to result in employment and compensation that permits them to pay off their loans? If not, should their applications be turned down?

3) Is a college education necessary for everyone to succeed in the workplace?

Chronicle Outlook readers received a useful briefing on these issues recently from Kyle Scott, a Lone Star College trustee who teaches American politics and constitutional law at the University of Houston ("Government subsidies drive up education costs, Page B9, July 19).

Scott delved into all of the subjects mentioned above, but his thoughts on the third question drew our particular attention.

"We need to re-evaluate the value of a college education," Scott wrote. "We need to not only develop programs that will train students in the industrial and practical arts.

We also need to stop stigmatizing those who choose a route other than college. We should not push anyone into college who would be better served through another type of training."

Words for all of us to ponder as we watch college costs soar and good-paying technical and mechanical jobs go begging.